* There is no cash subsidy transfer to a farmer unless there is a claim; otherwise a farmer writes a premium check. Crop insurance is a premium cost-share program rather than a traditional subsidy that pays farmers cash. In most years, farmers write premium checks and do not collect an indemnity.

* There are states where the farmer-paid premiums have exceeded the claims over the past 20 years; thus farmers in those states have netted none of the cash premium subsidy. That does not mean that those states are overrated, because one catastrophic-loss year would wipe out all of the gains from the prior 20 years.

* All of the catastrophic-loss years with state loss ratios over 3.00 are in the Corn Belt, not the Great Plains.

* The U.S. Government Accountability Office (GAO), Risk Management Agency (RMA), etc., don't count the years with RMA underwriting gains, but they do count the loss years. The net taxpayer costs are equal to the "subsidy" plus the RMA underwriting gain or RMA underwriting loss. For example, in 2009, the subsidy was $5.4 billion and that is reported as the taxpayer "cost" for crop insurance by all of the government agencies, including GAO.

However, the net payer cost is the $5.4 billion less the RMA gains of $1.4 billion for a net taxpayer cost of $3.99 billion, i.e. RMA underspent their budget, but credit is never given. In a loss year like 2012, there were $17.401 billion in claims, paid by $4.135 billion in farmer-paid premiums, $6.975 billion in subsidies, AIP's that paid $1.313 billion in underwriting losses, and RMA that paid $4.977 billion in underwriting losses. Thus, the net taxpayer cost for the 2012 year was $11.9 billion ($4.98 billion in RMA underwriting losses plus $6.9 billion in subsidies). However, 2012 was the worst loss ratio since 1993.

* The average annual net taxpayer cost over the life of the ARPA Law (12 years) was about $4.1 billion; with A&O expense included the total cost was about $5.3 billion a year. The current Standard Reinsurance Agreement (SRA) caps the A&0 expenses to about $1.3 billion annually.

There would also be cost for RMA employees and the administration of the program by the Secretary's Office.

* The crop insurance program provides over $116 billion of coverage that provides the collateral for farmers to obtain reasonable financing that is necessary for a commercial-size efficient farmer to meet the market demands of a low cost producer. There is only about a dime's worth of wheat in a $3 loaf of bread at the supermarket! Only efficient commercial-sized farms can provide bread with 10 cents worth of wheat.

* The current SRA allows RMA to retain a larger share of the underwriting gain and pay a smaller share of any underwriting loss. Had the current SRA been in place for the years prior to 2011, the RMA would have retained a larger share of the gain and paid a smaller share of the loss, especially in the Group 1 states.

* Elimination of the large farms will shrink the size of the insurance pool. A larger insurance pool size spreads the risk over more farms, but if the pool shrinks as a result of public policy, then the national loss ratio may turn negative, requiring rate increases on the smaller farmers remaining in the insurance pool.

* All of the current proposed changes including the limit on AGI would allow mega-sized farmers to change to CAT coverage with a 100 percent premium subsidy that requires no farmer-paid premiums. They do pay a "small" processing fee.

* A return to a government employee-administered disaster program would provide the best protection to high-risk farming states. Because of farmer-paid premium costs, on average, Kansas farmers buy coverage that is 13 points lower than purchased in Iowa and Kansas farmers pay premium rates for that reduced coverage that are double those rates paid by Iowa farmers.

* A payment limit on a direct payment that is paid every year is very different than the impact of a payment limit on crop insurance/disaster aid program. In most years, farmers don't have a claim and must write premium checks, but in the 1 year out of 10 years (varies by luck and region) when a loss occurs, an insurance payment that is capped will not cover a significant part of the loss for a commercial size farm. When new combines cost over $400,000 plus the header, then a $40,000 payment limit makes no sense as a risk management tool. If crop insurance is not going to provide a safety net for commercial agriculture, then why the need to provide a safety net for small part-time "hobby" farmers?

There are methods for reducing taxpayer cost for crop insurance that would not significantly harm agriculture. However, much of the debate seems to be based on two positions - the political left wants the safety net to return to a government employee run disaster program for "small" farms only; and the political right wants the farm safety net eliminated. If the debate were simply over the cost-share of the premium farmers should pay versus taxpayers, then a reasonable compromise could be reached.

Few are now arguing that crop insurance does not work. With the introduction of revenue insurance it targets payment to farmers who suffer financial losses rather than production losses. Under the price protection programs, when farmers had large yields it often causes prices to decline so farmers were collecting payments and with a big crop. When the crop failed, often times the price increased, but farmers had nothing to sell at the higher price.

Revenue Protection (RP) paid farmers in Iowa for 2012 revenue losses. Without the RP, Iowa growers would have had smaller claim checks or even no payments for the worst disaster since 1993. As in prior disaster years before the introduction of replacement-revenue crop insurance, there would have been calls for disaster payments in the middle of a Presidential election year. In the past, there were ad hoc disaster programs in nearly every year. After 30 years of RMA working to build a better crop insurance contract to prevent Congress from providing ad hoc disaster aid, now that crop insurance does work, many congressmen want to eliminate the coverage.

The other nonsense argument is that if the government provided no crop insurance support, the private sector would provide the coverage. The real problem with crop insurance is the catastrophic-loss year and how to rate for that year. In most lines of private property-casualty lines of insurance, about 65 percent of the premium is paid in claims, and varies little from year to year. However, on Minnesota corn RMA/AIPs have paid from 11 percent to a high of 827 percent of the premium in annual claims over the past 21 years.

Loading a private rate to cover a potential 827 percent of premium claim year will generate rates higher than most farmers would pay. As a result it is likely most farmers would "self-insure" and just wait for the ad hoc Federal Disaster program based on their experience over the past 30 years. However, under ad hoc disaster aid, it is unlikely that regulators would allow ag banks and Farm Credit to use it as collateral. Under a premium cost share program, the crop insurance coverage provides over $100B of coverage to repay loans and cover lost expenses.

Would crop insurance ever payout $150B (coverage increase when harvest price increases) in claims? If it did, it would require nearly all of the USA insured acres to generate a zero yield. The problem would be no bread on the shelf in the super market and hungry people everywhere, i.e. a famine, something the USA has never seen.

The extremes in the loss ratios, caused by the correlation in crop losses, is the reason the stop-loss is needed in the SRA. To have crop insurance widely available and at affordable rates, it requires the catastrophic stop-loss protection from the government.

The catastrophic stop-loss is the justification for government to be involved, and without that stop-loss protection, it is unlikely that large numbers of farmers would be able to buy coverage for perils like drought.

By Art Barnaby is an economist and Kansas State University Research and Extension Specialist.

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